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Carlson Ine, is evaluating a project in India that would require a $5.5 million after-tax investment today (t=0). The after-tax cash flows would depend on

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Carlson Ine, is evaluating a project in India that would require a $5.5 million after-tax investment today (t=0). The after-tax cash flows would depend on whether India imposes a new property tax. There is a 5050 chance that the tax will pass, in which case the project will produce after-tax cash flows of $1,150,000 at the end of each of the next 5 years. If the tax doesn't pass, the after-tax cash flows will be $1,950,000 for 5 years. The project has a WACC of 12.0\%. The firm would have the option to abandon the project 1 year from now, and if it is abandoned, the firm would receive the expected $1.15 million cash fow at t=1 and would also sell the property and receive $4.85 million after taxes at t=1. If the project is abandoned, the company would receive no further cash inflows from it. What is the value (in thousands) of this abandonment option? Do not round intermediate calculations. a. 587 b. 5781 c. $606 d. $963 e. $693 Carlson Ine, is evaluating a project in India that would require a $5.5 million after-tax investment today (t=0). The after-tax cash flows would depend on whether India imposes a new property tax. There is a 5050 chance that the tax will pass, in which case the project will produce after-tax cash flows of $1,150,000 at the end of each of the next 5 years. If the tax doesn't pass, the after-tax cash flows will be $1,950,000 for 5 years. The project has a WACC of 12.0\%. The firm would have the option to abandon the project 1 year from now, and if it is abandoned, the firm would receive the expected $1.15 million cash fow at t=1 and would also sell the property and receive $4.85 million after taxes at t=1. If the project is abandoned, the company would receive no further cash inflows from it. What is the value (in thousands) of this abandonment option? Do not round intermediate calculations. a. 587 b. 5781 c. $606 d. $963 e. $693

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